Executive Summary / Key Takeaways

• Autodesk is executing a strategic transformation to become the platform of choice for the converging Design and Make industries, leveraging cloud, AI, and a modernized go-to-market approach.
• Recent financial results, including 15% Q1 FY26 revenue growth and strong free cash flow generation ($556 million in Q1 FY26), demonstrate resilience despite macroeconomic uncertainty and ongoing business model transitions.
• Investments in core technology and AI, such as Fusion's AutoConstrain feature with a ~50% acceptance rate and accelerated roadmaps for industry clouds like Forma and Fusion, are driving productivity gains and competitive differentiation.
• The transition to annual billing for multi-year contracts is mechanically rebuilding the free cash flow stack, expected to reach $2.1 billion to $2.2 billion in FY26, enabling increased capital return via share repurchases ($1.1 billion to $1.2 billion planned for FY26).
• Ongoing go-to-market optimization and restructuring initiatives, while potentially disruptive in the near term, are aimed at driving long-term sales and marketing efficiency and expanding non-GAAP operating margins to 39-40% (excluding NTM/FX impacts) in FY26, positioning the company for industry-leading GAAP margins over time.

The Blueprint for a Digital World

Autodesk, Inc. stands at the intersection of imagination and reality, providing the software that empowers innovators across architecture, engineering, construction, manufacturing, and media and entertainment to design and make the world around us. From iconic buildings and critical infrastructure to cutting-edge products and captivating visual effects, Autodesk's technology is foundational to how industries operate. The company has undergone a significant evolution, transitioning from a perpetual license model to a subscription-based, cloud-enabled platform, strategically positioning itself to capitalize on the accelerating digital transformation and the convergence of design and manufacturing processes.

At the heart of Autodesk's strategy is the vision of a unified "Design and Make" platform. This isn't merely a collection of disparate software tools; it's an integrated ecosystem designed to connect people, processes, and data throughout the entire project lifecycle. This convergence is critical in addressing persistent industry challenges like labor shortages, material scarcity, and the increasing complexity of projects. By breaking down traditional silos and enabling seamless workflows from initial concept through construction, fabrication, and even into operations, Autodesk aims to drive efficiency, sustainability, and resilience for its customers.

Central to this platform strategy is the development and integration of cutting-edge technology, particularly in cloud computing and Artificial Intelligence (AI). Autodesk has been investing in AI for over a decade, focusing on building capabilities that augment, automate, and analyze workflows. Examples include AI-powered insights in Autodesk Forma for early-stage design and planning, and the AutoConstrain tool in Fusion, which leverages AI to simplify defining sketch geometry, demonstrating a roughly 50% user acceptance rate on suggested geometry. These features are built off proprietary foundation models that understand design data, offering tangible productivity gains by automating repetitive tasks. The company is also accelerating roadmaps for its industry clouds like Forma and Fusion, focusing on enhancing data management, collaboration, and integrating disruptive AI capabilities to generate geometry in simpler ways. This technological leadership, coupled with a commitment to an API-based architecture via Autodesk Platform Services, fosters a large global network of third-party developers, creating a key competitive advantage.

In the competitive landscape, Autodesk holds a leading position in core CAD software, estimated at 40-50% market share. Its specialized focus on engineering and design workflows provides a differentiated value proposition compared to broader software providers like Adobe (ADBE) in creative tools or Salesforce (CRM) in enterprise CRM, although these companies also offer cloud and collaboration features. While some competitors may exhibit higher net margins (e.g., Adobe's ~28% vs. ADSK's ~18.5% TTM net margin), reflecting potentially greater operational efficiency or different business models, Autodesk's strength lies in the depth and breadth of its domain-specific solutions and its established ecosystem. The company's strategic acquisitions, such as Payapps to enhance Autodesk Construction Cloud, further bolster its end-to-end offerings and competitive footprint, particularly in high-growth areas like construction. However, the industry faces competition from open-source alternatives and rapidly evolving AI technologies from various players, necessitating continuous investment in R&D (around 24% of revenue in Q1 FY26) to maintain its technological edge.

Performance Reflecting Transition and Resilience

Autodesk's recent financial performance underscores the ongoing strategic transitions and the underlying resilience of its business model. For the three months ended April 30, 2025 (Q1 FY26), total net revenue increased 15% year-over-year to $1.63 billion (16% in constant currency). Excluding the impact of the new transaction model (NTM), revenue growth was 11% in constant currency, a slight acceleration from the prior quarter's exit rate, driven by strength in the AECO segment (20% growth to $809 million), contributions from Enterprise Business Agreements (EBAs), and robust activity on the Autodesk store. The Manufacturing segment also showed strong growth (15% to $309 million), reflecting customer adoption of the Design and Make platform and Fusion. The Media and Entertainment segment saw a 7% increase to $76 million, boosted by the PIX acquisition.

The subscription-based model continues to provide stability, with recurring revenue representing a consistent 97% of total net revenue in both Q1 FY26 and Q1 FY25. The net revenue retention rate (NRR) was slightly above 110% on a constant currency basis in Q1 FY26, partly benefiting from the NTM transition.

Operating expenses saw increases across the board, reflecting investments and the impact of the NTM. Marketing and sales expenses rose significantly (21% to $566 million), primarily due to the change in recognition of sales commissions under the NTM (from contra-revenue to expense), a cumulative stock-based compensation adjustment related to the ESPP ($54 million one-time noncash charge), and increased promotions. Research and development expenses increased 14% to $394 million, driven by higher employee costs (including the ESPP adjustment) and cloud hosting costs, aligning with the strategic priority to invest in cloud, platform, and AI. General and administrative expenses increased 5% to $162 million. Amortization of developed technologies and purchased intangibles also increased due to recent acquisitions.

GAAP operating income decreased to $233 million (14% margin) in Q1 FY26 from $299 million (21% margin) in Q1 FY25, primarily impacted by restructuring charges ($105 million) and the one-time ESPP stock-based compensation adjustment. However, non-GAAP operating income rose to $608 million (37% margin), an increase of three percentage points year-over-year, demonstrating operating leverage from ongoing cost discipline and timing benefits from restructuring, partially offset by the NTM margin drag.

The transition to annual billing for multi-year contracts continues to impact the timing of billings and cash collections. Billings increased 29% as reported (30% CC) to $1.9 billion in Q1 FY26, reflecting this shift and the NTM transition ($105 million contribution from NTM). Remaining performance obligations (RPO) stood at $7.2 billion as of April 30, 2025, with current RPO at $4.6 billion, both growing 21% year-over-year.

Cash flow from operations increased to $564 million in Q1 FY26, compared to $494 million in the prior year period. This was driven by net income adjusted for non-cash items and changes in working capital, including a decrease in deferred revenue partially offset by changes in accounts receivable and prepaid expenses. Net cash used in financing activities was $415 million, primarily due to share repurchases. The company repurchased 1.0 million shares for $353 million in Q1 FY26 at an average price of $268.67.

Outlook and the Path Forward

Autodesk's outlook for fiscal year 2026 reflects confidence in the underlying business momentum and the benefits of strategic initiatives, while prudently accounting for external uncertainties and internal transitions. The company raised its full-year FY26 guidance ranges:

• Revenue: $6.925 billion to $6.995 billion (increased from prior guidance), representing growth driven by underlying business performance and the NTM impact.
• Billings: $7.16 billion to $7.31 billion (increased from prior guidance), reflecting the continued shift to annual billing and the NTM transition.
• Free Cash Flow: $2.1 billion to $2.2 billion (increased from prior guidance), including approximately $110 million to $120 million in restructuring cash outflows and a $130 million to $150 million benefit from utilizing U.S. deferred tax assets. This significant FCF generation is a key outcome of the annual billing transition, rebuilding the cash stack from the FY24 trough.
• GAAP Operating Margin: 21% to 22%.
• Non-GAAP Operating Margin: 39% to 40% (excluding NTM and currency impacts), positioning the company at the higher end of its previously stated target range and representing a significant improvement since FY23.

The guidance assumes consistent underlying business momentum, characterized by strong renewal rates. However, the lower ends of the billings and FCF ranges incorporate additional caution regarding macroeconomic uncertainty, assuming potential deceleration in new business growth and EBA renewal uplift rates similar to pandemic levels, although these trends are not currently observed. The underlying revenue growth guidance remains unchanged due to its ratable nature and the risk reduction from Q1 performance.

Management expects the change in sales incentive recognition under the NTM to positively impact calculated revenue growth, be broadly neutral to operating profit and FCF dollars, and negatively impact operating margin percentage during FY26. However, the overall non-GAAP operating margin is expected to expand due to operating leverage and cost discipline. The restructuring plan, initiated in Q1 FY26 to optimize the go-to-market organization and reallocate resources to cloud, platform, and AI, is expected to be completed by the end of FY26 and contribute to future efficiency.

The company plans to return significant capital to shareholders, expecting to buy back $1.1 billion to $1.2 billion in shares in FY26, a 30-40% increase from FY25, leveraging the growing free cash flow.

Risks and Considerations

Despite the positive outlook and strategic progress, investors should consider several key risks. The ongoing macroeconomic and geopolitical uncertainty could still negatively impact customer spending and new business growth, potentially challenging guidance assumptions. The successful execution of the go-to-market optimization and restructuring plan is critical; failure to achieve expected efficiencies or manage potential disruption could impact financial results and employee morale. Competition remains intense, with rivals investing in cloud and AI, potentially leading to pricing pressure or market share shifts if Autodesk's technological advancements or GTM execution falter. International operations expose the company to FX fluctuations and political/regulatory risks, including potential impacts from trade policies and sanctions. Legal and regulatory matters, particularly the ongoing internal investigation and related lawsuits regarding free cash flow and non-GAAP operating margin practices, introduce uncertainty regarding potential financial loss and reputational harm. Data privacy and security risks are increasing with the shift to cloud and AI, requiring significant investment and exposing the company to potential liability and reputational damage from breaches or non-compliance with evolving global regulations. Reliance on third-party software and channel partners also presents risks if these relationships are disrupted or partners face financial instability.

Conclusion

Autodesk is navigating a period of significant strategic transformation, moving towards a more integrated, cloud-based "Design and Make" platform powered by AI and supported by a modernized go-to-market approach. The company's recent performance demonstrates resilience and the initial benefits of these initiatives, particularly in driving revenue growth in key segments like AECO and Manufacturing, expanding non-GAAP operating margins, and generating strong free cash flow. The predictable FCF build from the completed annual billing transition provides a solid foundation for increased capital return. While macroeconomic headwinds and the complexities of internal and external transitions present risks, management's focus on disciplined execution, technological leadership, and operational efficiency through initiatives like the NTM and restructuring positions Autodesk to capitalize on the long-term secular growth trends in its core markets. The investment thesis hinges on the successful realization of the planned margin expansion and the continued ability to translate technological innovation and GTM optimization into sustainable, profitable growth, ultimately aiming for industry-leading GAAP margins and enhanced shareholder value.